I Lost $250,000 With Luna... Here's What I Learned

Shaan Puri

I was in Hawaii when it happened. I was on a beach, and then Luna crashed. I went to literally zero, and I was like, "Oh man." For a day or two, it kind of messed up my vacation in a way, but not because I was doing something. I didn't even have access to my wallet; it's not just on the cloud. So, I just wasn't home. I couldn't even sell if I wanted to. I couldn't do anything really. And then, I didn't even want to be doing something. I was like, "I want to be enjoying this vacation," you know? Whatever. Can you...

Sam Parr

Tell me what happened. Can you tell me, like, you had told me, "Luna's kinda cool," and you told me that like 6 or 8 weeks ago?

Shaan Puri

yeah actually so I did something cool too in the last few days you'll see it come out I I I went really over the top with a piece of content I haven't done this since I did that clubhouse thread that was extremely over the top but I was like I kinda find this entertaining and this might hit and the clubhouse one like really hit hit like I don't know like 20,000,000 people saw that thing I did that again with the luna stuff where I recorded I basically am creating like a almost like a john oliver style show you know his show last week tonight or whatever where he just kinda like dismantles one topic for like 15 minutes and it's like but it's peppered with jokes I did that on the luna thing so that's gonna come out last day or 2 but that was a very fun exercise to try to like so tell me what happened to try to be funny but the story is I guess for for those who don't know okay so here's the short here's the short version of the story short version of the story is you have bitcoin gets big has this like anonymous creator and it's supposed to do like one thing really well which is like basically this like digital gold and then you have ethereum gets really big and it's got this guy vitalik he becomes the next cult hero first it was satoshi for bitcoin then it becomes vitalik and and vitalik solves a major problem with bitcoin which is that he makes it programmable and ethereum takes off and ethereum's more programmable form of money but both bitcoin and ethereum have like one major problem which is that they're not very good as actual currencies right they're called cryptocurrencies but you don't use them as a day to day currency you don't use them to go buy stuff and this is for like a variety of reasons right like bitcoin if you try to spend it you'll get taxed as if you just sold a home every time you do a transaction and then the merchant doesn't want it because they're like oh shit what tomorrow this is gonna go down 20% price like dude I'm not trying to invest I just need money to pay for tomorrow's inventory like I don't wanna take this in my coffee shop and so it's not really you those aren't really you so basically there's this idea of creating stable coins there's a coin that's always gonna be worth $1 and like this is the spoiler it's like you know you don't want it to not be worth $1 which is what happened with with the terra project but like you know it's supposed to be worth $1 so the way that most people did it the big ones usdc tether those are the 2 big ones they're like it's basically like like a like a safety deposit box you give them a real dollar they'll give you a digital dollar and if you ever want your real dollar back they're like I promise it's in the bank vault whenever you need it come back and redeem it and and those kinda have some controversy because crypto people don't like it because it's like well how do I know you're not lying like how do I know you didn't just take all that money in the bank vault and go spend it or invest it in some risky way and that's why people think tether did does and and also they're like dude what if the government just cracks down this one company like they could just like they have to operate in some country yeah

Sam Parr

like it's centralized the the whole it's yeah centralized this decentralization thing isn't real so in that.

Shaan Puri

So, okay, that's the pro. The pro argument for this project that came out is called Terra, and one of their currencies is called Luna. The idea was, we need a decentralized stablecoin. We need decentralized money.

Sam Parr

Does that mean that one person invented Terra and then another person invented Luna? No, using Terra's technology.

Shaan Puri

No, no. Terra is like the name of the company, Terraform Labs. It's a group of people who came together and said, "We're going to create a stablecoin." Then the stablecoin, one of them, is called UST. Think about it like the US dollar version of Terra, UST. That was their stablecoin; it's the thing that's always supposed to be $1. Luna is the token that backs it. Remember I said, in the other version, what backs the digital dollar? It's a real dollar in a bank account. The way that the US dollar used to work was that what backed the US dollar was gold in Fort Knox, right? That was before we got off the gold standard. But the idea is that what gives this currency any value is this backing currency. They were backing it with Luna, and Luna was meant to be this... it's like two. They basically created two coins: the stablecoin and then Luna, which can actually go up and down in price as a stabilizing mechanism for the stablecoin. So, whatever... these are some details; they're not super important to what actually happened.

Sam Parr

so but it was one guy right because I saw like oh

Shaan Puri

there's no reason to go out but like there's a team right this is a it's a company

Sam Parr

okay

Shaan Puri

just like a startup right mark zuckerberg that's this guy do kwon

Sam Parr

got it

Shaan Puri

Okay, so, who is Do Kwon? He's a pretty interesting character, right? He basically graduated from Stanford with a degree in computer science. He started working on something like mesh networking for his first startup. Then he thought, "Oh no, crypto is the future. I'm going to create a stablecoin project." They came out with this idea, and there were some skeptics because they had seen decentralized stablecoins before. This uncollateralized, decentralized algorithmic stablecoin—just a bunch of buzzwords—but that's how you describe it. A similar stablecoin failed before; there was a project called Basis Cash about five years ago. Basis raised, I don't know, $80 million or something like that from tier-one investors like Andreessen Horowitz and a bunch of other VCs. But they didn't even launch. They were like, "Oh, we don't know if this algorithmic thing will hold," so they returned 85% of the money as a failed project. That was the last big version of this that had come out, and then Terra came out. The difference with Terra was they said, "Look, this works as long as there's demand for the stablecoin." So they asked, "Where does the demand come from?" At first, he came out with the idea that they would use it for e-commerce. In e-commerce, every time there's a transaction, there's like a 3% credit card fee. They proposed that they could do it at 1% if they used crypto. For a merchant, that's real money saved if someone uses this option. What they did was say, "We'll pass the savings to the customer and the merchant, 50/50." Then they talked to all these e-commerce companies in Korea, where they're from, and they got 27 large e-commerce companies, including the second biggest one in Korea, to use them. So, imagine like not Amazon, but let's say eBay. They got eBay to use it! Everyone was pretty hyped. They were like, "Oh shit, this is crypto with a real-world use case. Finally, a real-world use case!"

Sam Parr

this is and you were hyped on it

Shaan Puri

I was hyped on it. This guy, because he was on stage, said, "Look, crypto is full of a bunch of projects that have no real-world use cases and very low user bases. We have a real problem that we're solving, and we have real users. We have 2,000,000 people using our payments app to do this in Korea." I was like, "Wow, awesome! I buy in." And then things started... how much?

Sam Parr

did you invest in can you say you wanna

Shaan Puri

Say it now. I started with $25,000, and then I had an opportunity to put in another $200,000 as part of a group of VCs who were buying Luna. They invested in the company and got to buy Luna at basically a 40% discount to the market rate. At the time, it was trading at almost $100, but we got to buy it at just under $40. However, it was locked up and would be released over a number of years. So, I did that. I was like, "Oh dude, I like this project." If I get to buy it 50% under market, like hell yes, sign me up! Also, these are all tier 1 crypto investors. I mean, they raised $1,000,000,000 from investors, so it wasn't some random project. I thought, "Well, these guys are smart; they're doing it right." That validated my belief. Okay, I'm going to go ahead and do this. For a while, it looked like a genius move because Luna was trading at, oh, I don't know, it hit like $116. It was one of the best performers last year. Basically, in about a year and a half, Luna went from under a dollar to $116. So, it did like a 100x in one year. I was in at around the $30 to $35 price.

Shaan Puri

Overall

Sam Parr

40% of 30 or 30

Shaan Puri

no no my my price. My actual price. Was like $35 blended

Sam Parr

so then you were you went I

Shaan Puri

was up to 3 or

Sam Parr

4 years 7.50

Shaan Puri

Yeah, exactly. My $250 was like $750. I was like, "Oh great, it's doing well!" This was just the start; it was growing really fast. Not just the price, but the number of people buying the stablecoin was going up. I think the stablecoin had like, I don't know, $18,000,000,000 of TVL (Total Value Locked) or something like that, so it had gotten pretty big. But I kind of noticed, I was like, "Wait, they don't talk about the e-commerce thing ever anymore." That's because it kind of didn't work. It was working slowly; I think merchants cared, but not enough. Consumers didn't really change their behavior, so it wasn't like a sexy growth story. I don't think it was working, so they just stopped talking about it. Instead, they decided to serve the crypto community itself with a savings rate—a savings account. Basically, there was a savings account on the network that said, "If you deposit your stablecoin here, you get paid 20% interest on your stablecoin," which is kind of amazing, right? Because if I take my dollars to Bank of America...

Sam Parr

I get yeah but that sounds like the policy

Shaan Puri

Scheme... shit sounds like it, right? But it's not. I'll tell you why. So, it was like Bank of America gives you 0.2%. This was giving you 20%. A lot of critics said exactly what you said, which is, "Oh, this is a Ponzi." I will argue it is not a Ponzi; it was even better than a Ponzi. So, like a...

Sam Parr

what's going up from a ponzi

Shaan Puri

okay so a ponzi

Sam Parr

is fucking stealing

Shaan Puri

Basically, a Ponzi scheme works like this: Customer A gives you money, and you use that money to pay out Customer B. Then, Customer B gives you money because they already have faith in the scheme. You use that money to pay out Customers C and D. So, you're taking one customer's money and paying out another. This was even better: they just created a currency out of thin air, printed like $1,000,000,000 of it, and then they just gave it away. Right? Like, the market believes...

Sam Parr

it high value so have you seen on what's that where they have patty just patty's dollars on yeah

Shaan Puri

patty's bucks and all of a sudden yeah

Sam Parr

patty's bucks it's always sunny yeah that's exactly what happened they just created their own currency and just collected the dollars

Shaan Puri

In a way, that's what all currencies are, right? The U.S. dollar... every country does this. They create their own currency, and if you believe it's valuable, then it becomes valuable. If you cease believing it's valuable, then it devalues. We see this in different countries, and that's what happened here. For a while, people believed it was valuable, and they kept investing in it. Two things happened. One was that everybody knew that this 20% savings rate is not sustainable. The reality—the joke that was my joke version of description—was that when they raised $1,000,000,000 from investors, they basically were like, "Look, this savings rate is really good for customer acquisition. It's a marketing budget." Just like Uber subsidizes your rides, why was an Uber ride back when we all started using it like $12 when a taxi would have been $28? It's because VCs were basically giving Uber money, and they were losing money on the rides. That's what Terra was doing; they were losing money on this savings rate, but they were getting a whole bunch of new customers. They got like 4,000,000 people almost to create wallets on the network. So, it was like they were buying user acquisition. Now, you could argue that was either dumb or not dumb, but it was definitely unsustainable. Everybody kind of... anyone smart knew that it was unsustainable. But it's like, "Hey, look, I get rewarded for being early here. I'm going to get this subsidized earnings savings rate, and that'll go away as this gets more popular." But like, cool, that's my benefit for being early. That's how almost every crypto project works, and it's how many startups work as well. Investors subsidize the usage of your free product until it's big enough where they'll start to charge or raise prices.

Sam Parr

to and then to get to the kinda like fast

Shaan Puri

so to the crash

Sam Parr

I care I care about your take on like what happened to you but to get to the crash what happened

Shaan Puri

To get to the crash... Okay, so all along the way, people are like, "Hey, algorithmic stablecoins only work when demand keeps going up. Once demand starts to fall, this thing will free fall." So, yeah, you have demand right now; that's why everything looks good. But once this starts to fall, it'll create a death spiral. Meaning, once people stop wanting UST, Luna's price will go down. Once Luna's price starts going down, people will start selling Luna. It's basically just an interplay between if UST either starts to depeg, meaning instead of being worth a dollar, it was worth 95 cents. People will not want it; they'll lose confidence in the stablecoin. As they lose confidence, they'll sell, which will create more supply of Luna, causing the price of Luna to go down. That will cause even less confidence in the whole project, and it'll just death spiral. This was the belief. All along, this guy Do Kwon, who started off seeming like this smart, kind of "wanna change the world" guy, he'd become kind of an egomaniac. It was part of his persona. He was like a Donald Trump or Elon Musk-style guy. If you disagreed with him, he didn't just say, "I agree, let's agree to disagree." No, he was like, "I will shit on you. I will call you stupid and poor, and I will make fun of you."

Sam Parr

is that literally what he said

Shaan Puri

yeah he would call everybody stupid poor and he would basically oh my god

Sam Parr

say you're

Shaan Puri

All they're all fudsters, just spreading FUD, which is fear, uncertainty, and doubt. You know, and look, they've been wrong all the way so far. They're going to keep being wrong. This is exactly what Elon did about people who were shorting his stock. He was like, "Oh, it's going to be the short burn of the century. You guys are going to look so stupid." People are betting against him, and people are betting for him. So anyways, yeah.

Sam Parr

but he this guy forgot like the thing to make this work is you have to be right

Shaan Puri

Exactly. He was right for a while. By the way, it's really funny. There's one Twitter account that wasn't just saying, "Hey, this ain't gonna work." He specifically laid out a 15-step plan, saying, "Hey, look, I did the math. If somebody was motivated and had $1,000,000,000, they could destroy Terra, which is currently worth $40,000,000,000." So, if you put up $1,000,000,000 of sell pressure, I think you could crack the whole Terra project. It would have to be a smart, focused person who would have to time it right. And basically, he retweeted that and was like, "And this is like famous last words." He goes, "Man, this is the most beep r-word thing I've ever read on Twitter." Well, billionaires wait.

Sam Parr

he he said retarded

Shaan Puri

yeah really yeah

Sam Parr

what a dumb idiot why would he do that

Shaan Puri

would you call him a dumb idiot

Sam Parr

well like but like why would you say that like that

Shaan Puri

idiot would do such name calling

Sam Parr

How can you speak like that when you're like this? Like, like a CEO of... I've got some crazy stuff.

Shaan Puri

Donald Trump called Mexicans "rapists" and stuff. Dude, this is like crazy. People are crazy; they do crazy shit. Then, their fans—in his case—were called lunatics, and they were like, "Yeah!" And then, like, all they thought...

Sam Parr

that was cool

Shaan Puri

Well, I don't know if they thought that specific wording was cool, but in general, his character... I mean, he renamed himself "Stablecoin." He became a billionaire and got 1,000,000 Twitter followers because he became a cult of personality, similar to you.

Sam Parr

oh my god what an idiot though

Shaan Puri

So, anyway, he tweets, and he's really an idiot because he said, "This is the most ridiculous thing I've read on Twitter all week." He goes on to say, "Billionaires who follow me, please go ahead and try this." And sure enough, like two weeks later, or a week later, they did. Basically, somebody or some group—it's not confirmed who it is—it's also not confirmed that there's a coordinated attack, but it does seem like it. People started dumping like $1,000,000,000 worth of the stablecoin, which caused the peg to go down. When you have that much sell pressure, it won't stay worth a dollar; it slipped to 92 cents. On top of that, they were also dumping Bitcoin, which was the reserve collateral that these guys were holding. So, Bitcoin's price starts to go down, UST starts to break the peg, and people start to panic a little bit. They also started withdrawing. So, they did three things: they took it out of Anchor, the savings protocol, so you saw $1,000,000,000 worth of withdrawals. Then you saw them sell it, and then you saw Bitcoin's price tanking. All of a sudden, people started getting a little worried, thinking, "Oh shit, is something bad happening to Terra? Let me just go ahead and sell." So, more people started to sell, and you see like $3,000,000,000 to $5,000,000,000 of sales happening in a very short time.

Shaan Puri

Of time, and this also coincidentally, or very planned, happened right when they were doing... like, imagine you're moving houses right now. I was like, "Oh man, the doors are open because you're moving." The moving truck is outside, so the doors are open. That's basically what happened. They were moving all the liquidity from the liquidity pool from one to another. There wasn't much there; there were fewer shock absorbers than you would expect when they started to sell.

Sam Parr

it went from a 100 over a $100 to what what's it at now

Shaan Puri

less than a penny like fractions of a penny what yeah

Sam Parr

okay so how much value was wiped out

Shaan Puri

40 something $1,000,000,000 48,000,000,000 that

Sam Parr

is crazy that is

Shaan Puri

Crazy! The stablecoin went from selling at a dollar. So, that's Luna Terra; the stablecoin, UST, was supposed to always be a dollar. It went down to 92 cents, then 85 cents. So, I'm on the beach in Hawaii, and I'm just getting texts from Ben saying, "Yo, Terra's depegging." Then it goes down to 70 cents, shoots back up to 90, giving false hope for a second, and then it plunges to 65, 60, 50. I think it's currently trading at, I don't know, 15 cents to the dollar or something like that.

Sam Parr

you're you're you're out 2.50

Shaan Puri

I'm at 2 yeah 2.25 something like that

Sam Parr

how does that feel

Shaan Puri

I mean it feels shitty of course right like you know lose more than $1.50

Sam Parr

when you're sitting in hawaii

Shaan Puri

She doesn't really care to know, nor does she want to know the details. I told her, "Oh, well, from all of crypto, we lost several million dollars in the last three months because crypto has just been selling off like crazy." And she's like, "Okay, so like I shouldn't buy this bag or I should?" I was like, "I think it's a shouldn't right now. Let's go ahead and hold off on that." That's the level of conversation we've had about the whole thing. She's stressed about micro stuff; like if we have a late fee or a parking ticket, she'll freak out. But on the big things, she's very chill. She's like, "But..."

Sam Parr

how do you feel about that now now that you've lost you said several months to say $3,000,000

Shaan Puri

Like, I guess a couple of feelings. The first was, I'm not surprised. We went in pretty eyes wide open, which was this is a risk-reward type bet. You don't just say that; you have to actually know what the risk is. The risk was always that nobody's ever made an algorithmic stablecoin work. By the way, here's one spoiler: this guy Do Kwon turns out he was also the anonymous co-founder of Basis, and that got leaked as well. So it's like, dude, you know, fool us all once, you know, shame on you. Fool us twice, what the hell is wrong with you? That's my take on it.

Sam Parr

did he did he tweet out like I'm I'm sorry I'm a dick or like did he acknowledge it

Shaan Puri

He's like, "Look, we didn't mean for this to happen, obviously." I have no idea because some people are like, "Dude, did you benefit from this in some way?" That happens in crypto. People will raise a bunch of money, do a bunch of stuff, and then run away with the money. His claim is, "No, we didn't. We lost more than anyone on this whole thing." I feel really bad that this happened. He's kind of just like, you know, tail between his legs a little bit. He's sulking and he's much quieter now while everybody's dancing on his grave, deservedly so, because he was cocky as hell. With me, it's sort of like, "Alright, I lost some of this money. That's not good, obviously." But, you know, it doesn't feel good. It's sort of jarring. I've had startup investments go south, but it kind of happens over a longer period of time. This is like you wake up on Tuesday and one of your best performing investments has gone to zero in 24 hours. It's quite jarring to watch the price drop like a knife and feel pretty helpless. There's nothing you can really do about it, partially because my Luna tokens were locked up and partially because I was away from my computer. You know, whatever.

Sam Parr

But you're not... I would like, I mean, I would lose sleep over that. I would be like, I need... almost, almost, not quite scarred, but like a little bit. It would almost be close to where I would describe it as traumatic.

Shaan Puri

Yeah, it's not that for me. And again, I think it's because I write down whenever I do an investment. Here's my reasoning: I think there's a good investment and here's what could go wrong. The "what could go wrong" was exactly this, which is like people think that if there was a bank run, this would debt spiral. I see no reason that this wouldn't debt spiral if there's a bank run. I don't know what would cause a bank run, but it's possible. And it's like, "Oh, what would cause a bank run?" It was like either a motivated player created panic at a time when the project was vulnerable because all the markets—stock markets, crypto markets—are all down and they were moving the liquidity. So it's like, well, the risk kind of played out. Like, that's okay. It's like, you know, I've had pocket aces get cracked before, and I wouldn't even call Luna pocket aces. It's like I had a flush draw that got beat. Okay, you know, like to use poker terms, I had a flush draw that got beat. That's what happens. Even if I had a 60% chance of winning, okay, I got my money and good, but it wasn't my life savings. Now, there are a lot of people who lost a lot more money on this because they put in a lot of money. So to me, there's also like a post-mortem of like, okay, there are some rules. Like, you don't put more than, you know, 15% in any one project because all of them have these like black swan risks. So you never want to be that vulnerable to any one thing.

Sam Parr

is the majority of your net worth in crypto right now

Shaan Puri

it was not not not including everything cut in half

Sam Parr

not not including private like not including private businesses no

Shaan Puri

Of the liquid stuff, no, it's a little less than half now. It's a little more than half before, so you know. But like the stock market, also has nothing great. I don't know, I haven't really gotten that far.

Sam Parr

I've lost so much I don't log in to my thing anymore I I just I don't even look at it

Shaan Puri

Yeah, from a... I'm not gonna do it. I'm not gonna go trade right now. So, you know, for mental health purposes, I don't go calculate my net worth when it's so far down. You know, there is a good forcing function. I'm like, "Alright, great! Let me make sure I'm earning money. I'm working hard." Right? It's very easy when... like over the last year, year and a half, let's say since the kind of COVID money printing system. I mean, the whole 10 years have been a bull run or whatever, but like the last year and a half, like shit just inflated like crazy. So it was like, "Man, do I even need to work?" Like, I'll just look up every day and I made a whole year's salary in a day. You know, it's kind of demotivating to work. And then this is highly motivating to work when you start losing a year's salary per day. You know, like that starts to add up. So, yeah, I don't know. Like, that's I guess my full reaction to it.

Sam Parr

me too that's exactly mine as well it's like you just just make more money

Shaan Puri

yeah yeah exactly